FTC Ruling Issues in New Era of Social Media Compliance and Risks

Effective December 1, 2009 the FTC ruling, “Guides Concerning the Use of Endorsements and Testimonials in Advertising” takes effect.  Essentially this ruling was directed towards online media and specifically blogging and aims to provide the same type of consumer protection found in traditional advertising media.

If a company or its advertising agency provides a blogger or other online commenter with incentives in the hopes of getting a favorable review or positive buzz for its products, the online comments will be treated legally as endorsements.

The ruling requires full disclosure by bloggers, on their blog post, when they are either receiving compensation or free product by organizations whose products or services are discussed in said blog. By having full disclosure, readers can make a decision on whether a blogger discussing a particular product, service or company may have been incentivized and thus influenced by that company.

The potential impact on corporations and their legal departments is this. For vendors or suppliers, if you provide incentives (freebies) to a community of “preferred users” who blog about your product, you may be liable for any misleading statements (exaggerations, unsubstantiated claims) made by that blogger.

For customer organizations, if you have an employee who receives an evaluation sample and maybe free tickets to a vendor event, and the vendor asks your employee to evaluate the sample product and post a blog about his findings, and the employee is positioned as representative of your organization, you may be liable for any statements (positive or negative) made by that employee.

Blogging therefore has now fallen under the content filtering and compliance monitoring activity required of corporate legal departments.   The FTC states “…the extent that consumers’ willingness to trust social media depends on the ability of those media to retain their credibility as reliable sources of information…” “Nonetheless, if the advertiser initiated the process that led to these endorsements being made – e.g., by providing products to well-known bloggers or to endorsers enrolled in word of mouth marketing programs – it potentially is liable for misleading statements made by those consumers.”

Andrew Baer, a lawyer handling technology issues gives this recommendation:

“It’s now a best practice to treat company-initiated social media and blog posts as official corporate communications that require consideration of regulatory, securities, litigation and reputational risk issues, and possibly prior legal or regulatory review. The possibility that third-party posts may now be deemed company-initiated endorsements makes it vital to bring all social media marketing activities under one comprehensive policy.”

The FTC rules impose compliance regulations in what was previously considered an unregulated area of communications on the web.  Thus we increasingly see life on the information highway means you can’t travel safely without considering the costs for security, risk management, compliance monitoring, content and communications filtering.  Collectively we can call all of these things a security and risk policy. And as one famous commercial use to say: “don’t leave home without it.”